Hello all, I am looking for some insight on this situation. Fannie Mae approved this short-sale (again). When first approved, they approved the 6% agents commissions, and the 3rd party negotiators fee. The seller refused to sign an addendum from the MI co requesting a promissory note. It was resubmitted asking to drop the MI addendum requiring the promissory note. The short sale was approved, dropping the promissory note condition and the net amount required remained the same. The one change, Fannie Mae removed the 3rd party negotiators fee from the prelim HUD and is no longer willing to pay it. Now the negotiator is stating that his fee needs to be paid by the agents out of their commissions or the deal is dead. Just wondering your thoughts on this. I spoke with my broker, who stated that the negotiator is "trying to make his problem, our problem" and that "he needs to fight for his fee just like the agents do; it is between him and the bank."
Thoughts?
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The information below was provided by an Association of Realtors' Attorney to the membership: It pertains to Short Sale negotiations in CALIFORNIA;
DRE License Required for Negotiators
Real estate licensees who take short sale listings must ensure that the third party conducting the negotiations is properly licensed. The DRE has made it clear that a real estate broker or salesperson license is mandatory to represent the parties to a short sale, unless negotiations are conducted by an attorney or the party. If the negotiator is a licensee, then he or she must have a supervising broker. Careful consideration must be given to whom the fiduciary duty is owed. Is the negotiator an agent of the seller, a dual agent, or an employee/agent of the listing broker, the cooperating broker or both?
If the transaction involves a loan secured directly or collaterally by liens on real property, California Business and Professions Code section 10131(a) and (d) requires a person to be licensed who negotiates as a representative of another for the purchase, sale or exchange of real property, or who, for or in expectation of compensation, acts in a representative capacity for another to negotiate loans or perform services for borrowers or lenders. (Narrow exceptions exist for attorneys acting in the course and scope of their law practice and a person or entity acting solely on his or its own behalf).
A license is required regardless of the title used by the negotiator. For example, none of the following are exempt from the license requirement: debt negotiator, debt resolution expert, loss mitigation practitioner, foreclosure rescue negotiator, short sale procesor, short sale factilitator, short sale coordinator, or short sale expeditor. Persons who engage in short sale negotiations without a DRE license are in violation of California law and could be fined and/or imprisoned under section 10139 of the Business and Professions Code. Persons who knowingly hire them may also be in serious difficulty.
Obligations of Listing and Selling Brokers and Agents
Seller’s Written Agreement and Disclosure
The listing broker/agent must have the seller’s written agreement for the negotiator to provide services. This is required for several reasons:
(1) The listing broker/agent must disclose to the seller that the negotiator’s services will be used.
(2) The negotiator must have authority from the seller (borrower) to communicate on the seller’s behalf with Lender.
(3) The agreement of the seller is required regarding compensation to be paid to the negotiator.
(4) Use of the negotiator must be disclosed to the buyer’s agent.
These requirements may be met by completing the appropriate C.A.R. Form – Short Sale Addendum and providing the buyer’s agent a copy of the form. In addition, it is this author’s opinion that an agency disclosure form may often be required. If the licensed negotiator is acting on behalf of the seller (and/or buyer) in a principal/agency capacity, an Agency Disclosure form is mandatory.
Relationships between Listing Broker or Agent and Negotiator and/or Outside Broker
The listing agent generally has an independent contractor relationship with the listing broker. The negotiator may be an employee, an affiliated independent contractor, or an outside vendor of either the listing broker or the listing agent. If the negotiator is not an affiliated licensee of the listing broker, he must himself be a broker or be affiliated with another “outside” broker. The listing broker/agent should have a clear written agreement establishing the relationship with the negotiator. If the negotiator is affiliated with an outside broker, there should be a written agreement between the listing broker and the outside broker confirming that the outside broker will meet the fiduciary and legal duties to supervise the negotiator’s activities, not delegate tasks requiring a license to unlicensed persons, and provide insurance coverage for worker’s compensation and liability coverage for negligence or unintentional misprerensetations by the negotiator to the lender, buyer, seller or others. The agreement between the brokers should also establish their rights regarding commission splits and method for compensating the negotiator for his services. Providing for mediation or arbitration and attorney fees in the brokers’ agreement is also advisable.
Additional issues arise if the lender requires or designates a negotiator or if the listing broker/agent is also the buyer’s agent (dual agency) and uses a negotiator who is an employee or independent contractor of the lender. In a dual agency transaction, the agent has a fiduciary duty to the seller to negotiate the best terms for the seller, not obtain the highest price for the Lender.
All appropriate disclosures regarding affiliate business relationships and referrals must be made to comply with the Real Estate Settlement Procedures Act (“RESPA”).
Compensation to Negotiator
The negotiator must comply with all DRE regulations and California law for advance fees. Disclosure of all fees, including short sale negotiator compensation, must be made on the HUD 1 Statement. Payment to the negotiator must be made through escrow . Conditions for valid payment to a short sale negotiator include the following:
• Seller consent (written),
• Agency Disclosure,
• DRE license affiliated with licensed broker,
• Performance of licensed activities,
• Entitlement to compensation as an agreed commission split, a flat fee, or hourly rate as an independent contractor or employee of the listing agent, listing broker, or outside broker.
Will the fees still be due if the transaction fails to close or if the lender fails to grant approval?
Listing Broker/Agent Liability
Claims for breach of fiduciary duty, failure to disclose, or failure to supervise may be brought by a seller or buyer. DRE discipline and criminal and/or civil liability may attach even if the listing broker/agent is unaware that the negotiator is engaged in mortgage fraud.
MLS Listing Re Short Sale Negotiator Fees
Short sales present a special problem with conditional compensation being offered to a cooperating broker. The listing agent may not be entirely sure what the commission will be until the terms of a short sale are approved by the lender. The Multiple Listing Service (MLS) has adopted NAR-approved language giving participants in the MLS the ability to disclose or may require disclosure to other participants that there is a potential for a short sale. If the property is being listed as a short sale, that should be disclosed in the private agent remarks section.
A listing that requires the buyer’s agent to pay a portion of the negotiator’s fee may be a prohibited contingent offer of compensation. To avoid an MLS Rule violation, rather than requiring the cooperating broker to pay a stated amount of the negotiator’s fee, the listing agent may lower the percentage of the commission offered to the cooperating broker, subject to discussion with the seller and full written disclosure.
The purpose of the MLS is to exchange information regarding available properties for sale or lease and to establish legal relationships with other participants by making blanket unilateral offers of compensation. The MLS Rules govern the behavior of the participants. However, it must be abundantly clear that the Rules do not alter California law, including the DRE regulations, Statutory Law, and Case Law.
MLS Rule 7.12 sets forth the criteria for an offer of compensation as being a specific dollar or percentage amount. The Rule states, “… The amount of compensation … may not contain any provision that varies the amount of compensation offered based on conditions precedent or subsequent or on any performance, activity or event.” Rule 7.16 limits the manner by which compensation may be altered.
If there is no written agreement between parties have the seller call and remove the authorization for the 3rd party and finish the deal off with the Seller and Title Co. If the seller signed something it is their responsibility to pay, not yours. This is the big conflict of interest for most 3rd party negotiators, holding up deals to protect their fee. The good 3rd parties will have clear contracts in place that have terms in place ahead of time. If they can offset their charges through payments from the lender great, if not the upfront arrangement will kick in and no one is surprised.
From what I am reading the 3rd party negotiator did not have an agreement with either agent to be paid from them. Instead he/she made false promises that he would be paid the Bank and/or the servicer. Unless you had that in writing Fannie Mae does not pay 3rd party negotiator It is stated in their new guidelines. There is a very simple solution to this. The agents are the ones that are in control here. Just have the seller call or better write a letter to the servicer and Fannie Mae revoking authorization to that 3rd party negotiator. Then you simply take over and get your deal closed
This is exactly why I am strongly against a third party negotiator being "hired" by the seller on a short sale. Clearly the seller cannot pay. (Can anyone think of any other industry where a person can hire someone and lay the cost on someone else?). When there's a problem, the listing agent never wants to pay the negotiator, and the concept of requiring buyer to pay only complicates matters when a loan is involved. I realize there are some good strong 3d party negotiators there who have helped close difficult short sales, but when it comes to getting paid if the short sale lender(s) refuse to allow the fee, it only harms the seller and frustrates the **** out of the buyer.
This is remedied by the negotiator disclosing UP FRONT how he is to be paid. In my case, a written agreement is presented to the buyer and agreed upon. It is on the HUD, but on the BUYER side. FNMA will no longer pay anyone's processing or doc fees, including title, attorney, or agent.
The key is always early disclosure!
www.ssprocessors.com
Katherine, how do you get paid? You, the title company, lawyer, buyer's agent, short sale negotiator basically ALL get paid by the same person - THE BUYER - the seller isn't paying your fee, so yes, this is a transaction where a seller can hire all of the above and essentially the payment for everyone comes from the buyer either in the form of proceeds or directly.
Oops sounds like I touched a nerve. Sorry about that.
As a realtor, I get paid out of seller proceeds, either directly from seller proceeds on an equity sale, or out of seller's side that the ss lender allows. I have never been paid by the buyer. While it's true that the funds ultimately come from the buyer's money, the buyer is receiving the property in return for those funds. Realtor proceeds come from the Seller's side of the transaction out of seller/ss lender proceeds, so to say the buyer pays them is a fallacy (unless there's a buyer-broker agreement to that effect).
All I was trying to state above, is 1) I am opposed to involving a 3d party negotiator if it will jeopardize the short sale for the seller or create fraud that may involve my client or myself, and 2) I am opposed to a seller listing a property, and the listing agent or the seller involving a 3d party negotiator and requiring the buyer to pay that fee. If the agent is not confident in handling a short sale, then that agent should not take that listing. I will say that there are times a 3d party negotiator is a good idea, so long as it doesn't create legal/ethical problems for the principals or realtors.
Katherine, have you ever listed a property using a 3rd party negotiator? How do you have direct knowledge that it will jeopardize the sale? I see a LOT of agents make assumptions that a 3rd party negotiator screws up the sale in some manner, but few of them have ever utilized a third party company.
We have over 70 properties under contract right now and thankfully I deal with open minded agents I guess.
I have never been paid by the buyer. While it's true that the funds ultimately come from the buyer's money, the buyer is receiving the property in return for those funds. Realtor proceeds come from the Seller's side of the transaction out of seller/ss lender proceeds, so to say the buyer pays them is a fallacy
Where do you think the funds come from? If there is no buyer, you don't get paid. The reality is the BUYER pays the lender, your salary, title company fees, lawyer fees, etc. The short sale lender allots a certain amount of money out of the proceeds to pay those out and ALL that money comes from the buyer. My fee comes from the buyer too, only I don't need the approval of the short sale lender as it's coming off the buyers side of the HUD AND the buyer still gets the house or I don't get paid either.
I can't answer as far as Harry's concerns, because I'm not sure they even pertain to me and I don't operate in California. He's explaing commission and my fee is a flat rate based on the selling price of the home. It's also a condition of the sale, not commission. I may be wrong but I thought you could have a 3rd party negotiator in California, but maybe not.
I negotiate a lot of short sales for the Listing agents and get paid by them from their commissions through escrow. It is understood at the beginning what my fee is and I have never had any problems getting paid. There are a lot of newer agents or seasoned agents who are not qualified or do not want to deal with the stresses of short sales. I have helped several families and agents and it is always been a rewarding experience not just a paycheck.
The negotiator fee is never allowed on a HUD, (at least none that I have done) the way the banks look at it is they have their own negotiators so they will not nor should not be paying for a third party.
Who ever hired the negotiator should pay but in either case they cannot hold up the transaction.
If it's not on the HUD, doesn't that constitute Fraud?
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